Pensions could be fuelling climate change with huge £88 billion investment

Climate change is a huge global issue. Yet, research indicates that pension funds are investing billions of pounds in businesses that are contributing to the challenge. Does your pension invest in fossil fuel companies?

The Make My Money Matter campaign claims UK pension funds are investing £88 billion in fossil fuel companies. On average, this works out to around £3,000 for each pension holder.

The campaign, which encourages UK pensions and banks to stop “destructive, harmful investments”, states the actions of fossil fuel companies that pensions are investing in aren’t aligned with climate change goals.

Among the pension funds analysed, 70% said fossil fuel giant Shell was among their largest holdings, and 60% said the same about BP. Conversely, there were no renewable energy stocks listed among the top holdings of any of the pension funds assessed.

What’s more, “only a handful” of pension schemes used their shareholder power to publicly vote against fossil fuel companies expanding their operations at annual general meetings in 2023.

How is your pension invested?

Often, you don’t select the individual companies your pension is invested in, so you may not be aware if your retirement pot is invested in the fossil fuel industry.

Usually, your pension provider will invest your pension through a fund. A fund pools your money together with that of other investors and then invests in a range of companies. This may be a useful way to diversify your investments and manage risk.

One of the other benefits is that you don’t need to make regular investment decisions when you use a fund – this would be the responsibility of the fund manager.

Pension providers will typically offer you several different funds to choose from, which will have various risk profiles and criteria. If you haven’t selected a fund, your money will usually be invested in the default fund.

A report from the Pensions Policy Institute indicates that the majority of pension savers remain in the default investment strategy. Around 96% of people saving through a multi-employer pension scheme haven’t switched from the default option.

If you’re not selecting investments yourself, how do you know if your pension is invested in fossil fuels?

A fund factsheet can help you discover how your pension is invested

A fund factsheet could provide a useful overview of your pension fund.

The factsheets and what’s included will vary between providers. However, you’ll usually find information about the fund’s objective, risk level, and past performance.

You’ll also often find details of holdings – the companies that the fund invests in. This may not be a full list but will typically include the fund’s largest holdings. Some providers may also include a breakdown of how the fund invests in different sectors or industries.

Your pension provider might also publish other documents that you may find useful, such as investment and voting reports.

While these reports can be interesting, they can also be overwhelming and difficult to compare to alternatives.

If you’d like help understanding how your pension is invested, please contact us.

Many pension providers also offer an “ESG fund”

If you want to consider climate change when managing your money, reviewing the different funds your pension provider offers could be valuable.

Many providers offer an “ESG fund”, which would consider environmental, social, and governance factors alongside financial ones when deciding how to invest. The criteria of ESG funds vary.

It’s usually simple to switch your pension to another fund, but before you do there are some things you need to consider first.

It’s worth reading how the fund defines “ESG” and what its focus is. While it may consider environmental factors, it doesn’t automatically mean it’ll exclude fossil fuel companies. An ESG fund may not align with your personal values and views.

In addition, you may want to consider your financial goals. How does the risk profile of the ESG fund reflect your long-term plans and other assets? You may find that an alternative fund is better suited to you in terms of risk.

We can make your values part of your investment strategy

If incorporating your values into your investment decisions, including your pension, is important to you, we could help. We may work with you to create a tailored investment strategy that reflects key ESG issues and your personal goals.

Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.